Put backspread
Sell one put and buy two lower: large profit on a big fall.
Big move2 legsCredit
Illustrative: underlying at 100, strikes every 2.5, 45 days to expiry, implied volatility 25%, model prices. One lot = 100 shares.
Key figures
| Opens for | a credit of $56 |
|---|---|
| Max profit | +$9,056 if the shares went to zero |
| Max loss | −$444 |
| Break-evens | 90.56 and 99.44 |
| Position delta today | −3 shares |
| Outlook | Big move |
The legs
| Action | Quantity | Option | Model price |
|---|---|---|---|
| Sell | 1 | 100 put, 45 days | 3.22 |
| Buy | 2 | 95 put, 45 days | 1.33 |
How it works
Sell one put and buy two lower: large profit on a big fall. Ratios and ladders sell more options than they buy, or the other way round. That lowers the cost but leaves one side with large or open-ended risk.
When it fits
It suits a view that the underlying moves a long way, in either direction or the direction the structure leans to, before expiry.
What can go wrong
The most it can lose at expiry in this example is −$444. Short options can be assigned early, and a sharp fall with implied volatility rising can hurt more than the expiry line suggests, which is what the crash band shows.
Building it in Trident
In the Strategy Lab, choose put backspread and the days to expiry. Trident applies these strike rules to your live chain, prices each leg and draws the trade on the risk graph, where you can drag the days to expiry, change implied volatility or switch on the crash band. When it looks right, send it to order management; nothing reaches your broker until you send it.
Frequently asked questions
What is a put backspread?
Sell one put and buy two lower: large profit on a big fall.
What is the maximum loss on a put backspread?
In this illustrative example it is −$444 for one lot at expiry.
Where does a put backspread break even?
With the underlying at 100 in this illustrative example, the break-even at expiry is 90.56 and 99.44.
Can I build a put backspread in Trident?
Yes. Pick it in the Strategy Lab and Trident chooses the strikes from your live chain, prices the legs and draws it on the risk graph.
Illustrative example with model prices, not a recommendation. Options carry risk of loss. See the risk disclosure.